A new law designed to crack down on money laundering in the UK will likely create waves for some HNWs, warns Kyle Phillips
A new law is making its way through Parliament as part of the Criminal Finances Bill which will give the Serious Fraud Office, HMRC, the National Crime Agency and other agencies the power to require an individual to explain the ownership of assets and how they were obtained. This will be the power to apply to the High Court for an Unexplained Wealth Order (UWO).
Transparency International, a corruption watchdog, suspects that hundreds of properties in the UK are bought with dirty money belonging to corrupt politicians, tax evaders and criminals. The National Crime Agency estimates that up to £90 billion is laundered in the UK each year.
UWOs are intended to address a loophole in the law which currently renders the authorities powerless to seize property from overseas criminals unless they are convicted of a crime in their home country.
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UWOs can be granted where the court is satisfied that the individual holds property worth over £100,000. However, there will also need to be reasonable grounds to suspect that their lawful income would not be enough to obtain the property.
If the High Court decides to grant a UWO, the affected party must provide a statement explaining the nature and extent of his interest in the property, and how he obtained it. If he cannot prove that the property is legitimate then it will be seized by the authorities.
In its current form the scope of the UWO is limited to some degree in that it only applies to three scenarios: the respondent is a politically exposed person, or there are reasonable grounds for suspecting that the respondent is, or has been, involved in serious crime or a person connected with the respondent is, or has been, involved in serious crime. What is meant by the terms ‘involved’ or ‘connected’ is unclear and no doubt there will be multitudes of legal argument around this.
If the Criminal Finance Bill is passed then this opens up the possibility of a sizeable amount of intrusive UWOs being granted. Importantly, the recipient of a UWO does not need to be from, or even reside in the UK. It will also be retrospective which means it will apply even if the property was acquired before the new law is introduced. UWOs are already used in countries including Ireland and Australia and it is strongly believed that they will give the authorities greater armoury in their fight against money laundering and financial crime.
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The introduction of the UWOs should prove to be an encouraging step in the right direction to ensure criminals do not benefit from the proceeds of their crimes. It is clear that they are well-intended and the government should be praised for seeking to strengthen their powers to tackle corruption and money laundering.
The worry will be that the authorities may begin to rely heavily on UWOs, seeking to deploy them for an array of unproven criminal activity and not only using them against the suspected criminal, but their family, friends or business colleagues. Theoretically, there would be nothing to prevent the authorities from going after the property of the family members of someone suspected of being involved in a serious crime in the UK or abroad.
The government currently has in place several laws which give the authorities the power to fight money laundering in the UK under the Proceeds of Crime Act 2002. Unfortunately, there have been occasions when the authorities have misused these powers which have resulted in lengthy and costly litigation. We can only hope that the requirement of judicial scrutiny from the High Court will provide enough protection to ensure that UWOs are utilised correctly.
Kyle Phillips is an associate in business crime and regulatory department at Howard Kennedy
